Slow Government Formation Highlights Persistent Risks In Iraq

Delays in negotiations on key appointments for security-related ministries illustrates the deep divisions within Iraq’s recently elected parliament.

We still expect a cabinet to form eventually, enabling some progress on urgent economic measures.

However, policymaking will remain extremely challenging, limiting the prospect of progress on economic reform and security force integration. As such, instability risks will remain high.

Iraq - Adil Abdul-Mahdi's Cabinet

Source: Local, international media

Iraq’s government formation has been delayed, highlighting divisions in the recently elected parliament. Parliament confirmed 14 of 22 cabinet appointments, including the ministers of finance and oil, on October 24. Negotiations came to a halt, however, when a large group of lawmakers - including from the Sairoon bloc, led by cleric Moqtada Sadr, and the Nasr bloc, led by former Prime Minister Haider al-Abadi - walked out in protest at current Prime Minister Adel Abdul Mahdi’s proposed candidates for the ministries of defence, interior and justice. The candidates were claimed to have strong ties to Popular Mobilisation Units (PMU) - Shi’a militias organised to fight Islamic State (IS) that have grown powerful in recent years - as well as the Ba’ath Party of Saddam Hussein. This highlights how, despite some progress since the elections, divisions within the new parliament run deep.

We do expect a full government to form eventually, enabling some progress on near-term measures. This includes unlocking the USD30bn worth of aid and loans for reconstruction projects pledged by several Arab states and the US at an international conference in Kuwait in February (see ‘Aid Pledges Positive For Reconstruction, Though Instability Risks Persist’, February 21). Settling arrangements with Iraqi Kurdistan, with which the government has been in an armed standstill for most of 2018 following the region’s unsanctioned declaration of independence, will also be an urgent matter. Finally, the government should also be able to make some limited progress on addressing the poor provision of basic services, such as clean water and stable electricity supply, in the country’s south, which has been a source of widespread protests and riots in recent months (see 'Economic Grievances Will Continue To Fuel Unrest Risks In Iraq’, July 17).

That said, parliamentary fragmentation and tensions will severely hamper government policymaking. Mahdi, a political independent, will need to seek ad-hoc support in parliament for his policies. The parliament is highly fragmented, with the largest bloc, Sairoon, holding just 16% of the total seats. With this in mind, we see it as unlikely that Mahdi will successfully be able to tackle Iraq’s structural challenges. Key among these is the integration of PMUs, which pose a direct challenge to the authority of the central government, into the national security forces. Other deep-seated issues include pervasive corruption - Iraq ranks 169th of 180 countries in Transparency International’s 2017 Corruption Perception Index - and the security threats posed by remaining IS cells.

The government will thus struggle to boost non-oil growth and job creation, while public service provision will remain underfunded and inefficient, raising the risk of further social unrest. Meanwhile, failure to integrate Shi’a militias will heighten the risk of clashes with government forces and sectarian violence against Sunnis. As such, we maintain our proprietary Short-Term Political Risk Index at 35.4 (where lower scores correspond to higher risk). This puts Iraq as the fifth-riskiest of the 19 markets in the MENA region.